Is the 'Gig Economy' Running Into Political Trouble?

In a previous Mondato Insight we examined the role of "apptivism" in pressuring regulators and lawmakers to adapt legal rules to fit the needs of the "on-demand economy". Technology companies such as Uber and Airbnb were mobilizing their users and customers against what are almost invariably labelled "vested interests" in order to force regulators to rewrite the rules to accommodate their business models. They appeared to have the upper hand.

In the interim, however, things have not quite gone to plan in a number of US jurisdictions. This week's Mondato Insight asks, is the gig economy running into a wall of political populism?

Apptivists v Populists

Last summer Mondato Insight reported that the big tech companies that are at the forefront of the "on-demand economy" (AKA the sharing economy, the gig economy, the 1099 economy, among many other monikers) appeared to be winning the battle, if not the war, against regulation and legislation that was inimical to their business practices. Threatened by attempts to subject them to the same regulatory burdens as the legacy business models they sought to usurp, Uber, Lyft, Airbnb and others leveraged the voices of their devoted fans in order to put pressure on politicians to say out of their business, arguing that they had sufficiently robust systems in place to alleviate concerns about safety, transparency and potentially unfair practices. Despite setbacks in a number of jurisdictions around the world, the march of Uber and Airbnb seemed fairly unstoppable.

While it would go much too far to say that the brakes have been put on the on-demand economy, in a number of jurisdictions across the United States, Uber, Airbnb et al have emerged from skirmishes with the enforcers and makers of rules and regulations bloodied and bruised. 2016 has thrown up plenty of surprises, and while it has clearly been bubbling below the surface, the quadrennial circus of a presidential election has given vent to a wave of protectionist, populist political rhetoric at the national level that has clearly had an impact further down the layers of government.

Nerves in New York

In New York State, Assembly Bill A8704C passed both houses of the legislature in June, though it has not yet been delivered to Governor Andrew Cuomo for his signature, and it is currently unclear whether the governor will sign or veto the bill. The legislation highlights the fact that despite its popularity, Airbnb still operates in a gray legal area in New York and other jurisdictions: it is currently unlawful to sublet an apartment for less than 30 days unless the tenant remains on the premises. This is intended to prevent landlords operating illegal hotels and holding on to much-needed housing stock. Its flip-side, however, is that it also, technically, means hard-pressed New Yorkers are flouting the law by renting their entire apartment to visitors, undercutting one of the main components of the Airbnb brand - an "authentic" local stay that differs from a hotel stay not just in price but also in terms of experience. The bill seeks to enforce this prohibition on ordinary folks by imposing steep fines (ranging from $1000 for the first offense to $7500 for the third or subsequent violation) for merely advertising a property on a site such as Airbnb. In response, Airbnb has tried to mobilize its "apptivist" base, including via a significant TV ad campaign (see below), aimed at pressuring the governor into not signing the bill into law.

Trouble in Texas

Meanwhile, down in Texas, both Lyft and Uber have pulled out of the Austin market after the city voted to require app-based car-hailing services to fingerprint their drivers, in the same fashion as the city's licensed taxi drivers are fingerprinted. In what might be considered a Texican standoff, the companies had threatened to withdraw their services if the measure was passed, clearly hoping that consumer pressure and forecasts of chaos would convince the city's voters to see sense and let the two companies carry on as before. However, both companies would have done well to remember that the city's unofficial motto is "Keep Austin Weird", and by a 56% to 44% margin, voters decided that the companies should not be allowed to write their own rules when it comes to vetting drivers. As good as their word, Lyft and Uber suspended services the next day, leaving thousands of drivers out of work, and many more would-be passengers living in a ridesharing wasteland.

Except, of course, that while clearly Uber and Lyft are the two biggest names in the game, they are not the only ridesharing apps out there. And because business, like nature, abhors a vacuum, and there are now eight competitor services operating in compliance with the city's ordinances: RideFare, Fasten, Get Me, InstaRyde, RideAustin (a non-profit), Tride, Wingz and Z-Trip. Austin is providing something of a laboratory in which the "little leaguers" of ride-hailing get to fight it out without the big boys flouncing off with their ball.

Top Down v Bottom Up

It is of note, however, that these significant defeats for on-demand tech have come from different directions for the transportation and hospitality spheres. New York State's attempt to render the city's Airbnb market unworkable seems clearly intended to benefit the city's hotel industry and unions - the "vested interests" against which "apptivists" can clearly be mobilized. It is also notable because Airbnb has generally attempted a cooperative strategy with regulators in the cities in which it operates, unlike the slash and burn approach of Uber. Assembly Bill A8704C is unlikely to be a popular piece of legislation should it be signed by the governor, and for that reason it seems likely never to pass into law.

Events in Texas, however, show that there is an appetite in certain parts of the electorate for these companies to be brought to heel, and that the era of them being able to write their own rules may be coming to an end. Regulations that can be portrayed as "common sense" public safety matters, particularly with regard to background checks, are likely to find favor with members of the public, particularly in the current political environment, where politicians appearing to "stand up to big corporations" seem to be something of a vote winner.

Trouble Further Down The Road?

A hint of what may be to come, given the rise of populist anger across the political spectrum, was given by firebrand liberal Senator Elizabeth Warren of Massachusetts, in a May speech to the New America Annual Conference. In it Warren referenced the situation in Austin, and singled out Uber and Lyft (while praising many aspects of what they do) for seeking to play on an unlevel playing field against their licensed taxi competitors. Moreover, she drew attention to some elements of their basic business model that she believed required amending. Notably, she drew comparisons between the changes wrought by the industrial revolution, and the change currently underway in the digital transformation.

Framing the discussion in terms of how tighter labor protections were a necessary response to the squalor and exploitation that were often the products of the industrial revolution, Warren called for stronger laws to ensure that workers' protections were guaranteed, and that workers received their fair share of the proceeds of growth, rather than having their remuneration cut as the means to fuel it. Notably, she put the "gig economy" in the context of the broader trend towards using independent contractors in many areas of the economy, and called for specific measures that would, in her words, reinforce "the guardrails that once served to build a robust middle class".

It is unclear how much political support there exists within Congress for the sorts of proposals laid out by Sen. Warren, but any one of her main proposals would have a significant impact on business models within the gig economy: automatic deductions for Social Security, catastrophic insurance and the accrual of paid leave would all add significant costs for businesses working in this sphere. And a judge's recent squashing of an Uber settlement with drivers in California and Masschusetts over their employment status also seems to draw the lines on what is even acceptable under the current legal framework.

Significantly, however, the market is already experimenting to test the strength of a business model that includes these sorts of benefits. Portraying itself as the "anti-Uber", New York's latest ridesharing app, Juno, is seeking to capitalize on driver dissatisfaction with the promise of employee status and benefits, rather than being treated as an independent contractor, as is currently the case.

It is not yet certain, but there seem to be plenty of signals that, when looked at in a broad sense, point towards a tougher regulatory environment ahead for the "on-demand economy". Events in Austin and Juno's play in New York may also ultimately show that Uber and Lyft's rhetoric about what level of regulation makes the business model unfeasible is full of bluff and bluster. And while it is unlikely that Uber would have been able to grow so fast so quickly without its scorched earth approach to regulation, we may be reaching an inflection point where being known as an "ethically challenged" company is a drag on the brand, and treating drivers and workers well becomes a positive USP. Uber's response is the most Uber response imaginable: invest heavily to get driverless cars on the road as soon as possible.

No drivers, no problem. And while this clearly is not currently a viable option for businesses like Airbnb and TaskRabbit, it points once again to the looming, and still considerably underappreciated, massive mechanization of many tasks that are today still performed by humans. In that context, worrying about ensuring Social Security benefits for people whose jobs may be about to be taken over by robots and computers might in the future look rather quaint.

Mondato is a boutique management consulting firm specializing in strategic, commercial and operational support for the Digital Finance & Commerce (DFC) industry.

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